BUSINESS TECHNOLOGY

BUSINESS TECHNOLOGY; Time Warner Plans Cable System of Hundreds of Channels

By GERALDINE FABRIKANT

Published: January 27, 1993

Time Warner Inc. announced plans yesterday for a highly sophisticated cable television system that would provide hundreds of channels and a vast library of entertainment and services that subscribers could call up on demand.

The service, to be developed on the company's Orlando, Fla., cable system, will have so-called digital compression capabilities that can greatly expand the number of channels and permit video telephone service and full-motion interactive video shopping services. In contrast, conventional pay-per-view television has a set schedule, and home shopping network viewers must wait to see merchandise as it appears on the screen.

Last month, the nation's largest cable television company, Tele-Communications Inc., announced plans to develop its own enhanced system with hundreds of channels.

With the system planned by Time Warner, the set-top converter box will have to be more sophisticated than current devices. It will also have outlets to allow the connection of computers or other media, providing future opportunity for still further services and integration of technologies.

Gerald Levin, chairman of Time Warner, declined to give a cost figure for the system, which is expected to be operational by the end of the year. But one cable industry executive put the initial investment at $10 million for the hardware alone to reach the initial test market of 4,000 subscribers.

John Tinker, an analyst with Furman Selz Inc., said that while the start-up costs might be high, "the question is the average price as you roll it out across the country."

Time Warner told analysts last November that as it expanded such a service, the cost would average down to less than $1,000 a subscriber. But Mr. Tinker noted: "The revenues are the real issue. Who really wants the service and what will they pay for it?"

Some Wall Street analysts see the plan as driven by political considerations. Vice President Al Gore has said the Government should build electronic information "superhighways," which could be operated by private businesses. Time Warner executives said yesterday that the new system was their version of what Mr. Gore had described.

Mr. Tinker said that "as things are changing in Washington, private enterprise wants to make sure it is involved."

Cable operators and telephone companies have been vying to build such systems.

Some months ago, Time Warner had been in talks with the International Business Machines Corporation about combining I.B.M.'s data transmission technology with Time Warner's entertainment library. The plan announced yesterday is similar, in that it envisions giving the consumer more entertainment and personal services and more control over those services.

This time, however, I.B.M. is not involved. But Mr. Levin indicated an interest in having a telephone company or computer company as a strategic partner in such a development.